Sweett boss rules out refinancing

Sweett Group chief executive Dean Webster said there was no plan to look at refinancing the £73m-turnover consultant business after a “difficult year” in 2011/12.

Webster claimed the firm was back on track despite a technical breach of its loan covenants at its year-end in March when the sale of two PFI assets were delayed, and that he was “very optimistic” given trading since March.

Shares in consultant Sweett Group, formerly known as Cyril Sweett, had fallen as much as 5% this morning as it reported a pre-tax loss of £1m and revealed it had breached its banking covenants.

The consultant, which earlier this year posted profit warnings and delayed publication of the accounts after expected sales of two PFI assets failed to materialise, said its principal banker, Lloyds HBoS, had granted it a “waiver” to the breach of loan covenants.

However, the share price had recovered by lunchtime and Webster said the firm was no longer in technical breach of covenants because of the completion - after year end - of the £2.2m sale of one of the delayed PFI assets, and that the group would not be forced to re-finance.

He said: “There is a considerable amount of headroom on our debt facilities. If our covenants were tested today we would be absolutely fine,” he said.

“The problem would only arise if all of our material uncertainties came to pass in aggregation, and that’s the test we’ve done and passed with our auditors.”

Sweett Group chief financial officer Chris Goscomb said the breaches had been a “small infringement” on two of its covenants given the delayed asset sales, and that the issue was now “done and dusted.”

Webster added: “The real issue is we have launched a three year plan to return us to the levels of operating profitability we’re used to, we have a good set of trading figures for the most recent period and our order book is up. I’m not disputing that [2011/12] was a difficult year, but we are now getting the benefit of reduced operating costs and trading is pretty encouraging. I’m very optimistic.”

The firm said the group had a record forward order book of £90m and was showing continued growth in its Asian business, with the number of staff increasing by 30%.

Sweett’s results were “severely affected” by losses in Australia and the Middle East in the first half of the year due to spending cuts and the impact of the Arab Spring.

In the second half of the year further problems included delays in reaching financial close on the Leeds social housing PFI project, the deferral of two other PFI asset disposals, and £650,000 in finance costs relating to a foreign exchange exposure in Australian Dollars. 

The loss in the year to March 31 2012 compares to a profit of £2.3m in 2011. Revenue was exactly level with the amount recorded in 2011, however revenues in Europe were down by 8% to £39.8m, with the region now making up just 55% of the sales of the total business.

The firm’s results said it had net borrowings of £8.2m, with the principal laons from Lloyds held under five separate covenants. At 31 March 2012, the amount undrawn under the Group’s credit lines was £7m (2011: £7m). It said two of the financial covenants, being the cash flow cover and gearing covenants, were infringed at 31 March 2012.

The notes to the accounts list a set of seven uncertainties – including the continued deferral of closure for the Leeds social housing PFI scheme, which could cost up to £800,000 if no resolution is found – which it said, in aggregate, caused a “material uncertainty which may cast doubt about the Group’s ability to continue as a going concern.” However, it said it had assessed the risk and decided all of the risks were unlikely to materialise.

Webster said in the firm’s statement: “The cost cutting actions implemented during the second half of last year have given us a strong platform from which to deliver on our strategy to grow our already diverse business across growth sectors in the UK and growth markets abroad, in particular in Asia Pacific.    

“The Group’s trading during the first four months of the current financial year has been in-line with the Board’s expectations, with each reporting region seeing significant increases in profits compared to the same period last year. 

“Our order book currently stands at £90m, with a healthy split across Europe, where we have secured major framework appointments in the energy sector, and Asia Pacific, where we are capitalising on vibrant construction markets. Our order book in the Middle East is also recovering, following the Arab Spring.”